India’s top 50 pharmaceutical listed companies, with standalone net sales above Rs 100 crore, has failed to generate double-digit growth in topline as well as bottomline during the financial year ended March 2005.
The PHARMABIZ study of top 50 Indian companies, consisting of 40 Indian companies and 10 multinational companies, showed an insignificant growth of 4.9 per cent in net profit and 7.4 per cent in standalone net sales during 2004-05. In reality, these 50 companies net profit before exceptional items declined by 2.4 per cent to Rs 3935 crore from Rs 4032 crore in the previous year.
The poor growth rate is mainly due to the stiff competition in the international markets, significant jump in R&D spending and higher spent for launching new products in the regulated markets. The FY 2005 marked with several changes like commencement of patent regime, implementation of Value Added Tax and new excise duty structure based on MRP. These changes will have short term as well as long term effects on overall working of Indian pharmaceutical sector.
Further, the Indian Government is also giving necessary importance for the quality of products and implementing Schedule M in respect of cGMP in the country. Some of the state level FDAs is taking steps to close down several units, which are not complying with Schedule M. This will have positive impact on major pharmaceutical companies in the current year.
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The net profit after tax and exceptional items as per the audited/unaudited results increased to Rs 4,068 crore during 2004-05 as against Rs 3,878 crore in the previous year, registering a thin growth of 4.9 per cent only. Out of 50 companies, 32 companies manage to achieve positive growth in net profit but 15 companies recorded fall. Three pharmaceutical companies are still in red and incurred net loss for both the years. The standalone net sales of 50 sample companies increased only by 7.8 per cent to Rs 29,403 crore from Rs 27,380 crore in the previous year. The Indian companies have established their brand image in several segments like Cardiovascular, Gastrointestinal, Central Nervous Systems, Genitourinary, Respiratory, Pain-management, Anti-retroviral and Anti-infective.
Among the samples of 50 companies, 10 multinational companies (MNCs) improved there financial working as compared to that of 40 Indian companies. Ten MNCs achieved a net sales growth of 10.2 per cent as compared to 7.3 per cent by the 40 Indian companies. Similarly, the net profit of 10 MNCs went up sharply by 40.2 per cent to Rs 865.34 crore from Rs 617.25 crore as against fall of 1.2 per cent by 40 Indian companies to Rs 3202.83 crore in 2004-05 from Rs 3260.97 crore in the previous year.
The Pharma analyst pointed out that selling of assets, VRS, cost cutting measures and strong support from holding companies reduced cost of manufacturing as well as marketing for MNCs during 2004-05. “To fight Patent regime, Indian companies have to spend higher amount on expansion and R&D during 2004-05, which put pressure on working. The MNCs will follow ‘wait and watch’ policy for another few months and then introduce their patented products in Indian market in a large scale,” the analyst added. The pricing of product will be crucial and the Indian companies may score over MNCs in this regard.
To find out the performance based on company size, we have made five groups of our sample of 50 companies. The First Group and Fifth Group of companies failed to improve performance during 2004-05 and put pressure on entire Pharma sector. However, mid sized companies expanded their market reach and generated higher sales and profits in 2004-05. The post-patent focus of major companies will be on higher R&D activity, increasing in-licensing and alliances, contract research and contract manufacturing to aggressive positioning in the global market as low-cost players. These efforts will increase more consolidation in the industry in near future.
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Out of the PHARMABIZ samples of 50 companies, there was major setback for the top ten companies (First Group) in terms of profitability. Out of top 10 companies, the net profit of six companies viz Ranbaxy Laboratories, Dr Reddy’s Laboratories, Nicholas Piramal India, Lupin Ltd, Aurobindo Pharma and Cadila Healthcare, declined in the range of 8 per cent to 76.9 per cent during 2004-05. Dr Reddy’s Laboratories recorded a highest fall of 76.9 per cent in net profit to Rs 65.46 crore in 2004-05 from Rs 283.19 crore in the previous year. Aurobindo’s net profit saw a steep fall of 72.4 per cent to Rs 35.07 crore from Rs 127.02 crore and that of Ranbaxy’s net down by 31.2 per cent to Rs 547.06 crore from Rs 794.78 crore. Due to poor show by these six companies, the overall net profit of leading ten companies declined by 10.2 per cent to Rs 2,213 crore from Rs 2,463 crore in the previous year.
However, Companies like Cipla, GlaxoSmithKline Pharma (GSK), Sun Pharmaceutical Industries and Jubilant Organosys recorded handsome gain in profits despite several odds. Cipla’s net profit went up by 27.5 per cent to Rs 406.38 crore from Rs 295.59 crore and that of GSK, Sun Pharma and Jubilant Organosys moved up by 93.4 per cent, 16.7 per cent and 41.6 per cent respectively. (We have not included Jubilant Organosys in our ‘Top Ten Pharmaceutical Companies in India’, published in Chronicle Pharmabiz dated July 7, 2005 as the sales of pharmaceutical segment was only around 40 per cent of total net sales.).
The net profit of First Group of the top ten companies as per cent of aggregate net profit of 50 pharma companies came down to 54.4 per cent in 2004-05 from 63.5 per cent in the previous year. This shows that the negative growth in profitability of top companies put pressure on overall working. The top ten companies generated more than 50 per cent net sales of Pharmabiz sample of 50 companies. The top ten companies contributed 53.3 per cent to net sales of top 50 companies in 2004-05 as compared to 53.7 per cent in the last year.
Though the top ten companies received major jolt during 2004-05, the mid-sized companies in Second Group with sales between Rs 500 crore and Rs 850 crore achieved better performance and their net profit moved up by 30.1 per cent to Rs 984 crore from Rs 756 crore in the previous year. The companies like Wockhardt, Aventis, Pfizer, Glenmark, Alembic posted net profit growth of over 50 per cent. Biocon and Matrix Laboratories also pushed their net profit by 39.9 per cent and 5.9 per cent respectively during FY05. However, major companies in this Second Group viz., Orchid Chemicals, Ipca Laboratories and Torrent Pharma received setback in profitability. This group strengthened overall profitability position of top 50 companies. The net profit of this group as per cent of the total net profit, improved by 24.2 per cent as against 19.5 per cent in the previous year.
The net sales of Second Group of 10 companies showed a modest growth of 13.26 per cent during 2004-05 to Rs 6326 crore from Rs 5589 crore. Glenmark Pharma remained as star-performer in this group with net sales and net profit increased by 40.9 per cent and 51.1 per cent respectively. Orchid Chemicals’ net sales declined by 3.4 per cent to Rs 689.29 crore and its net profit declined marginally by 0.1 per cent to Rs 31.01 crore in 2004-05. Despite 9.8 per cent growth in net sales, Torrent Pharma’s net down by 17.5 per cent to Rs 52.92 crore. Wockhardt also achieved modest growth in net sales and net profit of 16.1 per cent and 55.8 per cent during 2004-05. The net sales of Second Group of ten companies as per cent of aggregate net sales of the top 50 companies worked out 21.8 per cent during 2004-05 as against 20.4 per cent in the last year.
Third Group of ten companies with net sales in the range of Rs 321 crore to Rs 471 crore also improved its performance and its net sales as well as net profit moved up by 12.6 per cent and 11.5 per cent. Except Novartis, all other companies in this group improved their net sales. Novartis suffered a set back and its net sales declined by 6.6 per cent and net profit by 42.8 per cent during 2004-05. The net profits of Divis’ Lab and FDC Ltd declined by 9.3 per cent and 17.7 per cent respectively. This Group’s net sales as per cent of total net sales of 50 companies remained almost stagnant at 12.7 per cent in 2004-05 as compared to 12.1 per cent in the last year. Similarly, the net profit of 10 companies in Group 3 worked out to 14.9 per cent of total net profit of 50 companies as against 14 per cent in the last year.
The Fourth Group of 10 companies with net sales between Rs 170 crore and Rs 320 crore achieved significant improvement in performance during 2004-05. Companies like Strides Arcolab, Ind-Swift Ltd, Ind-Swift Laboratories and Ajanta Pharma recorded net profit growth of more than 100 per cent. Further, Surya Pharmaceutical and Dabur Pharma achieved net profit growth of more than 60 per cent. Stride Arcolab’s net sales, for the 18 months period for the both year, moved up by 11.3 per cent to Rs 305.31 crore and its net profit moved up to Rs 29.16 crore from Rs 6.32 crore, registering a smart growth of 361 per cent. Among the 10 companies in the Fourth Group, only Wyeth Ltd received setback and its net profit as well as net sales declined by 33.8 per cent and 18.5 per cent respectively during 2004-05. The net sales of Fourth Group as per cent of sample of 50 companies worked out to 8 per cent as compared to 7.8 per cent and net profit of 10 companies as per cent of aggregate net profit of 50 companies moved up to 5.6 per cent from 4.1 per cent in the last year.
The Fifth Group of ten companies, with net sales between Rs 100 crore and Rs 160 crore, managed to turn the corner in respect of profitability but these companies failed to generate higher net sales in 2004-05. These ten companies achieved net profit of Rs 41.67 crore as compared to net loss of Rs 41.99 crore mainly due to reduction of losses by Morepen Laboratories and RPG Life Sciences, and substantial improvement in working of Dishman Pharma, Indoco Remedies, Fulford India and Solvay Pharma India. KDL Biotech could not improve its performance and its net loss increased to Rs 16.37 crore from Rs 3 crore. Though this group added to overall net profit of top 50 companies, the net sales of the 10 companies declined by 19.5 per cent to Rs 1323 crore from Rs 1644 crore in the previous year.
Click to view the Groupwise contribution in net sales and net profit (%)
The aggregate other income of Pharmabiz 50 Top Pharmaceutical companies increased only by 3 per cent to Rs 1078 crore during 2004-05 from Rs 1047 crore in the previous year. The other income of major companies like Ranbaxy, Aurobindo, Cadila, Dr Reddy’s Lab, GSK, Lupin, Morepen Lab and Novartis declined during 2004-05. However, other income of Cipla, Ind-Swift Ltd, Abbott India, Nicholas Piramal, Aventis Pharma, Biocon, Sun Pharma, Torrent Pharma, Wockhardt and Wyeth moved up sharply during 2004-05.
The staff cost increased by 17.2 per cent to Rs 2,613 crore from Rs 2,216 crore and other expenditure moved up by 14.4 per cent to Rs 8,069 crore from Rs 7055 crore. There was substantial rise in staff cost of Matrix Lab (78.6 per cent), Sterling Biotech (79 per cent), Ind-Swift Lab (80.4 per cent), Dabur Pharma (51.7 per cent), Torrent Pharma (49.3 per cent and Alembic (43.2 per cent). The staff cost of Wyeth went up by 50 per cent basically due VRS payment during 2004-05. The operating profit before interest, depreciation, taxation and exceptional items improved only by 2 per cent to Rs 6,439 crore from Rs 6,309 crore in the previous year.
The lower interest burden helped the companies to push their bottomline. The interest cost came down by 19.5 per cent to Rs 478 crore during 2004-05 from Rs 594 crore. There are few zero interest burden companies like GSK, Sun Pharmaceuticals and Wockhardt Ltd. Further, almost all the MNCs have a very small amount of interest burden. Few Indian companies like Biocon, Dabur Pharma and FDC also very meagre interest cost. Morepen has reduced its interest burden to Rs 2.22 crore from 97.87 crore during the 18 months period ended March 2005. The interest burden of few companies went up on account of investments in new expansion projects. The interest burden of Aurobindo increased by 24 per cent to Rs 39.99 crore, Cadila Healthcare (by 21.7 per cent to Rs 20.20 crore), Glenmark (by 66.3 per cent to Rs 16.73 crore) and Orchid Chemicals (by 19.2 per cent to Rs 72.31 crore).
The depreciation provision reached at Rs 1,005.7 crore as against Rs 881 crore in the previous year, registering a growth of 14.2 per cent. The profit before tax of 50 companies increased only by 2.6 per cent to Rs 4,964 crore from Rs 4,836 crore. These companies provided higher amount for taxation, which increased by 27.8 per cent to Rs 1,028 crore from Rs 807 crore. This put pressure on profit before exceptional items. The net profit, after tax but before exceptional items, declined by 2.4 per cent to Rs 3935 crore from Rs 4032 crore.
The exceptional items like selling of assets, written back of depreciation provided, VRS provisions, written down of prior year taxation have a positive impact on the final net profit. The provision for exceptional items of 50 companies worked out to Rs 126.65 crore, which pushed the net profit after exceptional items to Rs 4068 crore during 2004-05 as against negative amount of Rs 179 crore in the previous year. Nicholas Piramal has exceptional income of Rs 86.21 crore on account of return of its marketing and distribution rights to Roche Diagnostics. Similarly, Abbott India, Aventis, GSK and Pfizer sold their assets and generated non recurring income of Rs 43.31 crore, Rs 6.80 crore, Rs 67.04 crore and Rs 6.38 crore respectively during 2004-05. Thus, this kind of non-recurring as well as higher provisions for VRS during 2003-04 as compared to 2004-05 pushed the final net profit.
Thus, in nutshell, we can say that the financial performance of Indian top 50 pharmaceutical companies was not up to the mark and it is struggling hard to meet challenges. As compared to MNCs, Indian companies failed to report positive returns and MNCs managed their funds well to push bottomline. The Pharma analysts are very optimistic about the long term future of the segment on account of cost effective products, easy availability of skilled labour, investments in R&D, upgradation of technology, aggressive filing of DMFs and ANDAs in regulated markets, rich product pipeline and mergers and acquisitions in the international markets by Indian companies will give necessary boost to the Pharma business.
With these efforts, the Indian companies will be in a position to overcome the stiff competition and other challenges in Global market. The final positive outcome is depended mainly on early returns from R&D investments and launching of new blockbuster product. The first quarter results are expected to be better than the last quarter of 2004-05 on account of improved marketing conditions.
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